On the detrimental effects of concave emission charges in a dynamic Cournot duopoly model

Ahmad Naimzada and Marina Pireddu

No 466, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: We reconsider the dynamic Cournot duopoly framework with homogeneous goods by Mamada and Perrings (2020), in order to highlight the richness in its outcomes. In the model each firm is taxed proportionally to its own emission only and charge functions are quadratic. While Mamada and Perrings (2020) focus on the case of convex, and partially on the case of concave, charge functions, we show that completing the analysis for concave functions it may happen that, with the raise in the emission charges, the equilibrium production levels for the two firms, which are directly proportional to their emissions, increase, both with homogeneous and with differentiated products. This highlights that, even in the absence of free riding possibilities, too soft environmental policies can produce detrimental effects on the pollution level, and thus the choice of the mechanism to implement has to be carefully pondered.

Keywords: dynamic Cournot duopoly; differentiated products; emission charges; pollution control; comparative statics; stability analysis. (search for similar items in EconPapers)
JEL-codes: C62 D43 Q51 Q58 (search for similar items in EconPapers)
Pages: 10
Date: 2021-04
New Economics Papers: this item is included in nep-ene, nep-env, nep-gth and nep-ore
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